Pru pressing ahead with AIA deal: sources

Prudential Plc is pushing ahead with its bid for U.S. rival AIG's Asian unit, two sources close to the deal said, rebutting market talk of a derailment which boosted Pru's shares as well as the pound.

There has been no change, one of the sources said on Thursday. Prudential declined to comment.

Prudential shares were up 5.2 percent at 539p by 1119 GMT, off earlier highs but still outperforming a 3.9 percent rise in the European insurance sector , amid talk the company had pulled its $35.5 billion bid in the face of volatile markets and resistance from some shareholders.

Traders said the speculation also supported the pound, which rose to a two-week high against the dollar and an 11-month high against the euro. Pru would have to buy dollars to pay for the acquisition.

Prudential plans to finance the takeover, the insurance sector's biggest ever acquisition, with a $21 billion rights issue and needs to garner 75 percent support for the deal at a shareholder vote scheduled for June 7.

INVESTORS WARY

But the outcome of the vote is in doubt amid criticism from some investors that Prudential is paying too high a price and could face problems merging AIG's Asian business, AIA, with its own Asian operations.

The influential Association of British Insurers, whose members control about a fifth of the UK stock market, this week issued a warning on the deal, telling investors to carefully consider their options.

Its amber-top notice -- the second strongest option it has in its traffic light warning system -- was purely a routine reminder an ABI spokesman said.

Given the size and the complexity, shareholders need to look at it carefully, it would have been odd if we did not say that, the spokesman said.

The warning adds to a report earlier this week from voting adviser RiskMetrics which told investors to vote against the deal on the basis of a full price, integration risks and ambitious targets.

Investor skepticism over the deal has been fueled by snags including an unprecedented and unexpected regulatory hitch earlier this month and increasingly volatile markets.

But one broker said it was unlikely Prudential would pull the deal just over one week short of the shareholder vote.

This is price-sensitive information, the broker said. If the deal was off, Prudential would be obliged to put out a statement. The fact that they have not tells me to take the talk with a pinch of salt.

(Additional reporting by Victoria Howley, Steve Slater, Tamawa Desai and the European stock market team; Editing by David Holmes)